Series: Occasional Papers. 1209.
Author: Ángel Estrada and Eva Valdeolivas.
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Abstract
The labour income share is a key determinant of relevant macroeconomic variables, such as competitiveness, inflation, human capital accumulation, demand and income distribution. Simple economic models predict that the labour income share will fluctuate around a long-run value, thus implying a balanced growth path. However, in the past three decades a downward trend has been observed in various countries, especially in developed ones. To determine the sources of this trend, it is necessary, firstly, to address measurement issues, in particular the behaviour of self-employment, the role played by the non-market economy and the effect of the sectoral reallocation of activity. Then, various theoretical explanations are tested empirically, such as technological factors (capital-skill complementarity), international trade and changes in product and labour market regulations, controlling for the possible effects of the business cycle. This analysis reveals that the technological factors seem to be the most relevant determinants of the trend, and the labour income share is procyclical, but it lags one-year output movements.